Above: On October 16, 2004, the Golden Weld
Ceremony for the Baku-Tbilisi-Ceyhan (BTC) oil export pipeline
took place when the Presidents of the two host countries, Azerbaijan's
President Ilham Aliyev and Georgia's President Mickeil Saakashvilli
symbolically welded two pipeline sections together. Boyuk Kesik
village of Azerbaijan's Akstafa district bordering the Gardabani
district of Georgia.
The BTC Co, operated by BP, hosted an official "Golden Weld"
ceremony in October on the Azerbaijan-Georgian border where the
joints connecting the Azerbaijan and Georgia sections of the
Baku-Tbilisi-Ceyhan (BTC) oil export pipeline were symbolically
welded together by the Presidents of the two host countries,
Their Excellences President Ilham Aliyev and President Mikheil
Saakashvili. The event took place in the Boyuk Kesik village
of Azerbaijan's Akstafa district bordering on the Gardabani district
of Georgia.

This weld, which is one of 150,000 in BTC, brings us a real step
closer to the completion of the pipeline in the first half of
2005. BTC construction works is on track to be completed during
the first half of next year to allow export of oil from the Ceyhan
Terminal in Turkey during the second half of 2005. The project
employs around 17,000 people in the three countries of whom about
2,500 are in Azerbaijan and about 80 percent of these are Azerbaijan
nationals.

In Azerbaijan overall progress is 90 percent complete with only
8 km left to trench, 26 km to backfill and 105 km to re-instate.
The total length of the Azerbaijan section of the pipeline is
443km, of which the first 182 km has been successfully hydro-tested.
At the West Kura River, a micro tunnel operation is underway.

In Georgia the pipeline is over 80 percent complete and construction
of pump stations is over 86 percent complete. Of the total 249
km of the pipeline length 3km remain to be trenched, around 25
km to backfill and about 120 km to re-instate.

In Turkey, BOTAS, the Turkish state-owned construction company,
has made good progress in all construction locations. The pipeline
is 85 percent complete, the pump stations 65 percent complete
and the Ceyhan terminal over 90 percent complete. BOTAS has already
cleared the entire 1075 km length of the right of way. Remaining
works include 80 km of trenching, about 100 km of lowering in,
130 km of backfilling and 600 km of re-instating.

BTC is a major project, which will make a positive difference
by bringing significant benefits to the region. By avoiding the
Bosphorus, it will help relieve the inevitable growth in oil-related
traffic and associated environmental risks, will create substantial
revenues for the transit countries, and will help strengthen
economic and political links between Azerbaijan, Georgia, Turkey
and the West.

The Steering Committee for the
development of the Azeri, Chirag and deepwater portion of the
Gunashli (ACG) fields in the Azerbaijan sector of the Caspian
Sea, sanctioned in Baku on September 20 the construction stage
of the ACG Phase 3 project. The official signing of the Phase
3 project sanction resolution took place in a ceremony, which
was held at the Heydar Aliyev Respublika Palace as part of the
ACG Contract 10th Anniversary Celebration. Phase 3 sanctioning
is a major milestone towards full realization of the ACG Full
Field Development (FFD), which will ultimately deliver in excess
of one million barrels of oil per day. The Phase 3 project is
a $4.7 bn development plan. Some $3.2bn of the $4.7bn will be
spent on the construction of facilities, and the balance of the
sum will be spent on predrilling subsea injection wells, and
platform development drilling during the production period.

The ACG Phase 3 Project encompasses the development of the Deep
Water Gunashli portion of the ACG field. In addition, the design
of Phase 3 will allow capture of potential reserves in the western
portion of the Chirag area, which may not be accessed by the
Chirag Platform.

The Phase 3 project represents the next significant development
phase of the ACG Production Sharing Agreement (PSA) and will
optimise FFD economics enabling ACG production to rise to over
one million barrels a day by 2009. Recoverable reserves for the
Deep Water Gunashli area of the ACG PSA are approximately 176
million tons (approximately 1.25 billion barrels). The start
of oil production from Phase 3 is currently planned for mid-2008
and will peak at around 300,000 barrels per day. All associated
gas, except for fuel gas requirements, will be delivered to SOCAR.

Phase 3 offshore facilities will be largely identical to those
of Central Azeri. They will comprise a 48-slot Drilling, Utilities
and Quarters (DUQ) platform bridge-linked to a Production, Compression,
Water Injection and Utilities (PCWU) platform in Deepwater Gunashli,
located in 175m of water. Both installations will be operational
prior to first oil. To provide early reservoir pressure support
and a faster ramp up of the oil production rate, two subsea manifolds
will be constructed with up to ten subsea water injection wells
to be drilled prior to first oil.

Oil will be exported to Sangachal via new infield lines tied
into the two 30" oil pipelines installed for the Azeri project.
Associated gas production will be compressed and delivered via
the 28" subsea pipeline to Sangachal.

In addition, the Sangachal terminal will be further expanded
by two oil trains, a third 800,000-barrel capacity oil storage
tank and a second dew point control unit to process Phase 3 incremental
production.

The level of utilization of Azerbaijan's infrastructure and involvement
of local workers will continue to be significant throughout the
construction works. Topsides and jackets construction will take
place at the Heydar Aliyev Baku Deepwater Jackets Factory (BDJF)
fabrication yard and the ATA fabrication yard in Bibi-Heybat.

SOCAR/KMNF (Khazardeniz-neftdonanmasi) pipelay, crane, transport
barges and marine fleet will continue to be used. Local supply
and service companies involvement will be continued by the main
contractors who have been encouraged to maximise use of local
subcontractors.

Since the beginning of the year,
our production activities on Chirag have continued in accordance
with the plan for 2004 with an average production rate in excess
of 132,000 barrels per day for the full year, which significantly
exceeds our planned daily average production target of 125,000
for 2004, with an overall production efficiency of 93 percent
despite production cutbacks during January and February owing
to shipping congestion in the Turkish Straits and the planned
shutdown of the platform in early July.

In 2005 they expect to produce 227,000 bpd in total from Chirag
and Central Azeri. To date the Chirag platform has produced over
273 million barrels (over 36 million tons) of oil. We currently
have 19 wells on Chirag, of which 15 are producing wells and
four are water injection wells. The 19th well (A 19) on the field
was put on production on the 13th of December. We are proud of
the delivery from this well. A19 is an Extended Reach Drilling
(ERD) well and is the longest deviated well drilled in the Caspian
with a 6.5 kilometer step-out from the platform.

Drilling operations within the West Azeri (WA) pre-drilling program
have continued successfully. Currently we are drilling the fourth
pre-drill well on West Azeri and are planning to complete this
by the end of December.

Central Azeri Topsides

Above: In October, four full sections of the
Shah Deniz TPG 500 platform arrived in Baku, after a two-month
journey from Singapore. They were successfully docked at the
Floating Dry Dock by the Capsian Shipyard Company. Installation
of Central Azeri Production, Drilling and Quarters (PDG). Topsides
completed on October 10, 2004.

The topsides of the Central Azeri Production, Drilling and Quarters
(PDQ) Platform were successfully installed on the platform jacket
offshore on October 10. It brought to reality a concept that
was initiated five years ago. This followed the load out of the
15,000 ton-integrated deck onto the transportation barge STB-1
on the 3rd of October and sail away from the Heydar Aliyev Baku
Deepwater Jackets Factory (BDJF) yard on October 8.

The CA Topsides is a world-class facility fully built at BDJF
in Azerbaijan. It has 48 well slots and 420,000 stock-tank barrels
per day oil processing capacity with 122m x 50m x 34m dimensions.
The living quarters of the platform will accommodate 200 people
during production operations, which will begin early next year.
Topsides construction employed more than 2,000 people at its
peak, of which 75 percent were Azerbaijan citizens. In total
the Deck construction and offshore installation activities for
Central Azeri have expended 10 million man-hours with zero days
away from work case (DAFWC).
C&WP topsides
Compressor and Water Injection Platform (C&WP) topsides fabrication
in the ATA (AMEC-Azfen-Tekfen) yard in Bibi-Heybat is 82 percent
complete and is on target for sailaway and offshore installation
in the third quarter of 2005 and for the first gas injection
in November 2005. The C&WP will be bridge-linked to CA PDQ
and will provide all the gas and water injection to the Azeri
field. A maximum of tengas injection wells, 12 water injection
wells and two cutting injectionwells will be drilled on the Azeri
field and the platform will have a final gas injection capacity
of 1050 million cfd and water injection capacity of 900,000 bpd.

All the subsea pipe-lay, tie-in and testing work for the oil
and gas pipelines from Central Azeri to the Sangachal terminal
is completed, along with installation and comissioning of the
187km fibre communications cable, which is now operational. The
Pipe-lay barge Israfil Huseynov is currently completing its re-fit
work, and will mobilise to commence the ACG Phase 2 pipe-lay
work by the end of December. In October the pipe-lay barge was
successfully used to support the Central Azeri hook-up, providing
accommodation next to Central Azeri for 200 construction workers.

Sangachal Terminal
(STEP)
The construction activities aimed at building one of the world's
largest terminals are progressing on schedule. The main contractor
of the STEP works, Tekfen/Azfen has achieved the 17 million hours
milestone without any accident or injury from the beginning of
the construction works in November 2001. This is a remarkable
achievement and is a result of extremely hard work and dedication
to safety of all the people involved.

Overall construction works at STEP for Central Azeri are complete.
The main completed works have included the installation of the
major equipment and extensive piping systems. The pipelines have
been successfully hydro tested and cleaned with the help of a
pig. The construction of two crude oil tanks with a storage capacity
of 880,000 barrels each is already complete and work is on schedule
to complete a third tank in January 2005.

The Shah Deniz
Project
The Shah Deniz gas and condensate development project has made
significant progress during 2004 and Stage 1 construction is
currently 44 percent complete overall. Construction works for
Stage 1 are progressing according to schedule to meet the target
of delivering first gas to the market before winter 2006.

Following the successful three well pre-drill program and seismic
re-imaging project during 2003-2004, BP has revised both our
gas and condensate in place estimates and now believe there is
an additional 20 percent of hydrocarbons in place across the
whole field.

Floating Dry Dock
The four hull sections of the TPG 500 platform, which arrived
in Baku following a two-month journey from Singapore in October,
were successfully docked in the Floating Dry Dock by the Caspian
Shipyard Company, the Shah Deniz contractor for the hull sections
integration. The hull sections are currently being mated at the
Floating Dry Dock to form the integrated deck. Work will continue
on the hull integration until the end of March 2005, when the
integrated hull is scheduled to be towed across the bay to the
Zykh Yard for full topside integration and leg installation.
All activities associated with the hull integration are progressing
on schedule. Some 850 people are currently involved in these
activities of which about 650 are Azerbaijan nationals.
Zykh Yard Construction
The Shah Deniz platform leg sections are under construction at
the newly refurbished Zykh yard and are 37 percent complete.
Some 1450 people are currently involved in the construction activities
at the Zykh yard and of these 1200 are Azerbaijan citizens.

Other ongoing activities at Zykh include the construction of
temporary foundations, on which the legs will rest at the Zykh
Quayside. This work is nearing completion in preparation for
lifting into the water in February 2005.

The Drilling Equipment Set (DES), which arrived in Baku from
Norway in September, has already been assembled and is nearing
mechanical completion. Commissioning of the facility commenced
at the beginning of December. We will begin operator training
on the commissioned facility prior to the skidding of the DES
onto the hull in the second quarter of 2005, in addition, the
Living Quarters and topsides pipe racks are undergoing a fit
out process at the Zykh Yard.

The overall construction of the platform is on schedule for sail
away during the second quarter of 2006 in line with our target
to achieve First Gas for the winter of 2006.

South Caucasus
Pipeline (SCP)
The overall SCP project is 54 percent complete, with pipe stringing
along the right of way 14 percent complete in Azerbaijan and
30 percent in Georgia. The mainline welding, which began in Azerbaijan
in September is 10 percent complete, and in Georgia it is 21
percent complete. In Azerbaijan, the pipeline currently employs
about 1085 people of whom 820 are Azerbaijan nationals. The SCP
pipeline is scheduled to be completed in the fourth quarter of
2005.

New Office Building
BP, on behalf of its partners, recently signed an agreement with
the local company Azinvest Property (related party to Azpetrol)
for the development and the eventual lease of a new office building
to be constructed by Azinvest.

The office building will be constructed in Jalil Mammadguluzade
Street on a plot of land, which covers about 26,000 sq metres.
Azinvest will build the shell and core of the office premises
and then lease the building to BP for its joint venture operations
for a period of 15 years.

The current design is four 4-5-storeyed interconnected blocks
with about 500 parking spaces and other related facilities. The
shell and core construction will commence in the first quarter
of 2005 and should be completed by the third quarter of 2006.

The BP staff hopes to begin moving into the new office in 2007
which will accommodate more than 1000 BP staff for the currently
sanctioned projects operated by BP: the Azeri-Chirag-Gunashli
(ACG), Early Oil Project (Phase 1, Phase 2, Phase 3), Shah Deniz
Stage 1, South Caucasus Pipeline (SCP) and Baku Tbilisi Ceyhan
(BTC).